LS Securities Lowers Naver's Target Price Amid Rising Costs

 
LS Securities projected on October 1 that Naver will face increased profitability pressures due to slowing revenue growth and rising costs in the second half of the year. While maintaining a 'Buy' rating, the firm lowered its target price to 293,000 won.
 
Sun Yoo-jin, a researcher at LS Securities, estimated that Naver's consolidated revenue for the third quarter will reach 3.5061 trillion won, an 11.7% increase from the same period last year. However, operating profit is expected to decline by 14.0% to 490.9 billion won, falling short of market consensus. The anticipated operating profit margin is 14.0%, down 4.2 percentage points from the previous year.
 
The slowdown in revenue growth is attributed to a high comparison base from last year's economic recovery in the second half and a reduction in business days due to the Chuseok holiday falling in September this year. The diminishing impact of last year's increase in commerce fees is also seen as a burden. Although some advertising has been introduced on the AI platform, it is still considered too early for it to significantly drive overall revenue growth.
 
Profitability is expected to be impacted by the expansion of N Pay Connect terminals, increased capital expenditures leading to higher depreciation costs, and expenses related to broadcasting rights for the World Cup and Asian Games, as well as marketing costs for shopping promotions.
 
In particular, aggressive investments to rapidly expand N Pay payment terminals are anticipated to be a major factor in margin declines in the second half. However, this investment is aimed at securing an offline commerce ecosystem and data ahead of competitors, which could contribute to future revenue during the process of enhancing personalized and agentic services.
 
As a long-term growth driver, LS Securities highlighted the AI Factory. Sun stated, "Following the finalization of the contract with Brookfield, tenant agreements are expected to progress swiftly, and partial revenue contributions could begin in the first half of 2027." He added, "In a situation where AIDC supply is insufficient, the ability to utilize already secured data center space to launch services faster than competitors is positive. The second half will be a time to confirm the visibility of long-term growth narratives such as the AI Factory and virtual assets, rather than focusing on performance momentum."